##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from           to
 Commission file no. 1-14537
 Lodgian, Inc.
 (Exact name of registrant as specified in its charter)
 Delaware
    
    52-2093696(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)3445 Peachtree Road, N.E., Suite 700,Atlanta, GA
    
    30326(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code
(404) 364-9400
 (Former name, former address and former fiscal year, if changed since last report): Not
applicable
 þ o
  Large accelerated filer  o
    
    Accelerated filer  þ
    
    Non-accelerated filer  o
    
    Smaller reporting company  o(Do not check if a smaller reporting company)
 o þ
 þ o
  Class
    
    Outstanding as of August 1, 2008Common
    
    
    21,618,683




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##### 



LODGIAN, INC. AND SUBSIDIARIES
 INDEX
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements:Condensed Consolidated Balance Sheets as of June 30, 2008 and December 31, 2007 (unaudited)
    
    3Condensed Consolidated Statements of Operations for the Three and Six Months Ended June
30, 2008 and June 30, 2007 (unaudited)
    
    4Condensed Consolidated Statement of Stockholders Equity for the Six Months Ended June 30,
2008 (unaudited)
    
    5Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2008 and
June 30, 2007 (unaudited)
    
    6Notes to Condensed Consolidated Financial Statements (unaudited)
    
    7Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    19Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    40Item 4. Controls and Procedures
    
    40PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    41Item 1a. Risk Factors
    
    41Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    41Item 6. Exhibits
    
    41Signatures
    
    42EX-31.1 SECTION 302 CERTIFICATION BY THE CEOEX-31.2 SECTION 302 CERTIFICATION BY THE CFOEX-32 SECTION 906 CERTIFICATION BY THE CEO AND CFO
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30, 2008
    
    
    December 31, 2007(Unaudited in thousands, except share data)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    36,367
    
    
    $
    54,389Cash, restricted
    
    
    8,716
    
    
    
    8,363Accounts receivable (net of allowances: 2008 - $289; 2007 - $323)
    
    
    10,690
    
    
    
    8,794Insurance receivable
    
    
    
    
    
    
    2,254Inventories
    
    
    3,010
    
    
    
    3,097Prepaid expenses and other current assets
    
    
    17,004
    
    
    
    18,186Assets held for sale
    
    
    55,597
    
    
    
    8,009Total current assets
    
    
    131,384
    
    
    
    103,092Property and equipment, net
    
    
    448,148
    
    
    
    499,986Deposits for capital expenditures
    
    
    11,444
    
    
    
    16,565Other assets
    
    
    3,957
    
    
    
    5,087$
    594,933
    
    
    $
    624,730LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    8,307
    
    
    $
    9,692Other accrued liabilities
    
    
    25,880
    
    
    
    28,336Advance deposits
    
    
    2,069
    
    
    
    1,683Insurance advances
    
    
    
    
    
    
    2,650Current portion of long-term liabilities
    
    
    4,400
    
    
    
    5,092Liabilities related to assets held for sale
    
    
    29,765
    
    
    
    961Total current liabilities
    
    
    70,421
    
    
    
    48,414Long-term liabilities
    
    
    321,428
    
    
    
    355,728Total liabilities
    
    
    391,849
    
    
    
    404,142Commitments and contingencies (Note 8)Stockholders equity:Common stock, $.01 par value, 60,000,000 shares authorized;
25,071,836 and 25,008,621 issued at June 30, 2008 and
December 31, 2007, respectively
    
    
    251
    
    
    
    250Additional paid-in capital
    
    
    330,265
    
    
    
    329,694Accumulated deficit
    
    
    (94,413
    )
    
    
    (93,262
    )Accumulated other comprehensive income
    
    
    3,640
    
    
    
    4,115Treasury stock, at cost, 3,420,475 and 1,709,878 shares at
June 30, 2008 and December 31, 2007, respectively
    
    
    (36,659
    )
    
    
    (20,209
    )Total stockholders
equity
    
    
    203,084
    
    
    
    220,588$
    594,933
    
    
    $
    624,730
  3




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands, except per share data)Revenues:Rooms

    $
    
    49,364
    
    
    $
    49,224
    
    
    $
    93,212
    
    
    $
    92,045Food and beverage
    
    
    15,404
    
    
    
    15,323
    
    
    
    27,466
    
    
    
    27,803Other
    
    
    2,138
    
    
    
    2,131
    
    
    
    4,200
    
    
    
    3,799Total revenues
    
    
    66,906
    
    
    
    66,678
    
    
    
    124,878
    
    
    
    123,647Direct operating expenses:Rooms
    
    
    12,179
    
    
    
    11,725
    
    
    
    23,362
    
    
    
    22,339Food and beverage
    
    
    9,851
    
    
    
    9,918
    
    
    
    18,670
    
    
    
    18,753Other
    
    
    1,537
    
    
    
    1,462
    
    
    
    2,925
    
    
    
    2,704Total direct operating expenses
    
    
    23,567
    
    
    
    23,105
    
    
    
    44,957
    
    
    
    43,79643,339
    
    
    
    43,573
    
    
    
    79,921
    
    
    
    79,851Other operating expenses:Other hotel operating costs
    
    
    17,719
    
    
    
    17,603
    
    
    
    35,598
    
    
    
    34,492Property and other taxes, insurance, and leases
    
    
    3,760
    
    
    
    4,418
    
    
    
    8,112
    
    
    
    9,242Corporate and other
    
    
    3,484
    
    
    
    5,906
    
    
    
    9,369
    
    
    
    11,569Casualty gains, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,867
    )Depreciation and amortization
    
    
    7,989
    
    
    
    7,098
    
    
    
    15,458
    
    
    
    14,075Impairment of long-lived assets
    
    
    5,580
    
    
    
    155
    
    
    
    7,721
    
    
    
    314Total other operating expenses
    
    
    38,532
    
    
    
    35,180
    
    
    
    76,258
    
    
    
    67,825Operating income
    
    
    4,807
    
    
    
    8,393
    
    
    
    3,663
    
    
    
    12,026Other income (expenses):Interest income and other
    
    
    276
    
    
    
    807
    
    
    
    666
    
    
    
    1,719Interest expense
    
    
    (4,775
    )
    
    
    (6,044
    )
    
    
    (9,947
    )
    
    
    (11,422
    )Loss on debt extinguishment
    
    
    
    
    
    
    (3,330
    )
    
    
    
    
    
    
    (3,330
    )Income (loss) before income taxes and minority interests
    
    
    308
    
    
    
    (174
    )
    
    
    (5,618
    )
    
    
    (1,007
    )Minority interests (net of taxes, nil)
    
    
    
    
    
    
    (56
    )
    
    
    
    
    
    
    (421
    )(Provision) benefit for income taxes  continuing operations
    
    
    (24
    )
    
    
    372
    
    
    
    (87
    )
    
    
    1,079Income (loss) from continuing operations
    
    
    284
    
    
    
    142
    
    
    
    (5,705
    )
    
    
    (349
    )Discontinued operations:Income (loss) from discontinued operations before income taxes
    
    
    5,986
    
    
    
    (248
    )
    
    
    4,629
    
    
    
    1,961Benefit (provision) for income taxes  discontinued operations
    
    
    97
    
    
    
    (157
    )
    
    
    (75
    )
    
    
    (2,032
    )Income (loss) from discontinued operations
    
    
    6,083
    
    
    
    (405
    )
    
    
    4,554
    
    
    
    (71
    )Net income (loss) attributable to common stock

    $
    
    6,367
    
    
    $
    (263
    )
    
    $
    (1,151
    )
    
    $
    (420
    )Basic net income (loss) per share attributable to common stock

    $
    
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )Diluted net income (loss) per share attributable to common stock

    $
    
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )
  4




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AccumulatedAdditional
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    Paid-In
    
    Accumulated
    
    Comprehensive
    
    Treasury Stock
    
    StockholdersShares
    
    Amount
    
    Capital
    
    Deficit
    
    Income
    
    Shares
    
    Amount
    
    Equity(Unaudited in thousands, except share data)Balance, December 31, 2007
    
    
    25,008,621

    
    
    250

    
    
    329,694

    
    
    (93,262
    )

    
    4,115

    
    
    1,709,878

    
    
    (20,209
    )

    
    220,588Amortization of unearned stock compensation
    
    
    

    
    
    

    
    
    549

    
    
    

    
    
    

    
    
    

    
    
    

    
    
    549Issuance and vesting of restricted and nonvested shares
    
    
    60,881

    
    
    1

    
    
    (1
    )

    
    

    
    
    

    
    
    

    
    
    

    
    
    Exercise of stock options
    
    
    2,334

    
    
    

    
    
    23

    
    
    

    
    
    

    
    
    

    
    
    

    
    
    23Repurchases of treasury stock
    
    
    

    
    
    

    
    
    

    
    
    

    
    
    

    
    
    1,710,597

    
    
    (16,450
    )

    
    (16,450
    )Comprehensive loss:Net loss
    
    
    

    
    
    

    
    
    

    
    
   (1,151
    )

    
    

    
    
    

    
    
    

    
    
    (1,151
    )Currency translation adjustments (related taxes estimated at nil)
    
    
    

    
    
    

    
    
    

    
    
    

    
    
    (475
    )

    
    

    
    
    

    
    
    (475
    )Total comprehensive loss
    
    
    
    
    
    
    

    
    
    

    
    
    

    
    
    

    
    
    

    
    
    

    
    
    (1,626
    )Balance, June 30, 2008
    
    
    25,071,836

    
    
    251

    
    
    330,265

    
    
    (94,413
    )

    
    3,640

    
    
    3,420,475

    
    
    (36,659
    )

    
    203,084
   5




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LODGIAN, INC. AND SUBSIDIARIES
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 Six Months EndedJune 30, 2008
    
    
    June 30, 2007(unaudited in thousands)Operating activities:Net loss
    
    $
    (1,151
    )
    
    $
    (420
    )Adjustments to reconcile net loss to net cash provided by operating activities:Depreciation and amortization
    
    
    15,478
    
    
    
    15,762Impairment of long-lived assets
    
    
    9,218
    
    
    
    2,564Stock compensation expense
    
    
    549
    
    
    
    656Casualty gain, net
    
    
    (5,583
    )
    
    
    (4,525
    )Deferred income taxes
    
    
    
    
    
    
    300Minority interests
    
    
    
    
    
    
    421Gain on asset dispositions
    
    
    
    
    
    
    (197
    )Loss on extinguishment of debt
    
    
    28
    
    
    
    4,522Amortization of deferred financing costs
    
    
    709
    
    
    
    656Changes in operating assets and liabilities:Accounts receivable, net of allowances
    
    
    (2,865
    )
    
    
    (4,514
    )Insurance receivable
    
    
    
    
    
    
    958Inventories
    
    
    (398
    )
    
    
    (29
    )Prepaid expenses and other assets
    
    
    (177
    )
    
    
    345Accounts payable
    
    
    (540
    )
    
    
    (562
    )Other accrued liabilities
    
    
    (1,251
    )
    
    
    1,836Advance deposits
    
    
    575
    
    
    
    957Net cash provided by operating activities
    
    
    14,592
    
    
    
    18,730Investing activities:Capital improvements
    
    
    (25,495
    )
    
    
    (19,000
    )Proceeds from sale of assets, net of related selling costs
    
    
    7,723
    
    
    
    64,800Acquisition of minority partners interest
    
    
    
    
    
    
    (2,862
    )Withdrawals deposits for capital expenditures
    
    
    5,121
    
    
    
    1,909Insurance proceeds related to casualty claims, net
    
    
    5,187
    
    
    
    1,023Net (increase) decrease in restricted cash
    
    
    (353
    )
    
    
    3,695Other
    
    
    30
    
    
    
    8Net cash (used in) provided by investing activities
    
    
    (7,787
    )
    
    
    49,573Financing activities:Proceeds from issuance of long term debt
    
    
    
    
    
    
    130,000Proceeds from exercise of stock options
    
    
    23
    
    
    
    186Principal payments on long-term debt
    
    
    (8,048
    )
    
    
    (141,733
    )Purchases of treasury stock
    
    
    (16,774
    )
    
    
    (1,937
    )Payments of deferred financing costs
    
    
    
    
    
    
    (1,659
    )Payments of defeasance costs
    
    
    
    
    
    
    (3,895
    )Other
    
    
    
    
    
    
    (15
    )Net cash used in financing activities
    
    
    (24,799
    )
    
    
    (19,053
    )Effect of exchange rate changes on cash
    
    
    (28
    )
    
    
    143Net (decrease) increase in cash and cash equivalents
    
    
    (18,022
    )
    
    
    49,393Cash and cash equivalents at beginning of year
    
    
    54,389
    
    
    
    48,188Cash and cash equivalents at end of year
    
    $
    36,367
    
    
    $
    97,581Supplemental cash flow information:Cash paid during the year for:Interest, net of the amounts capitalized shown below
    
    $
    10,596
    
    
    $
    14,663Interest capitalized
    
    
    217
    
    
    
    21Income taxes, net of refunds
    
    
    148
    
    
    
    876Supplemental disclosure of non-cash investing and financing activities:Treasury stock repurchases traded, but not settled
    
    
    145
    
    
    
    Purchases of property and equipment on account
    
    
    3,224
    
    
    
    2,544
  6




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##### Table of Contents



LODGIAN, INC. AND SUBSIDIARIES
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 1. Business Summary
   
    
    43 hotels that were wholly owned and operated through subsidiaries; and
    
    one hotel that is operated in a joint venture in the form of a limited partnership, in
which a Lodgian subsidiary serves as the general partner, has a 51% voting interest and
exercises significant control.
  2. General
     
    
    the reported amounts of assets and liabilities;
    
    the reported amounts of revenues and expenses during the reporting period; and
    
    the disclosures of contingent assets and liabilities at the date of the financial
statements.
 7




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##### Table of Contents



3. Stock-Based Compensation
   Issued Under the StockIncentive PlanAvailable under the plan, less previously issued as of December 31, 2007
    
    
    2,536,666Nonvested stock issued January 22, 2008
    
    
    (76,500
    )Nonvested stock issued February 12, 2008
    
    
    (24,000
    )Shares of nonvested stock withheld from awards to satisfy tax withholding obligations
    
    
    11,257Nonvested shares forfeited in 2008
    
    
    3,000Stock options forfeited in 2008
    
    
    23,997Available for issuance, June 30, 2008
    
    
    2,474,420
 Stock Options
   Weighted AverageStock Options
    
    
    Exercise PriceBalance, December 31, 2007
    
    
    212,408
    
    
    $
    10.60Exercised
    
    
    (2,334
    )
    
    
    9.68Forfeited
    
    
    (23,997
    )
    
    
    10.58Balance, June 30, 2008
    
    
    186,077
    
    
    $
    10.61
   8




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##### Table of Contents



Options outstanding
    
    
    Options exercisableWeighted average
    
    
    Weighted
    
    
    
    
    
    
    Weighted average
    
    
    Weightedremaining life
    
    
    average
    
    
    
    
    
    
    remaining life
    
    
    averageRange of prices
    
    Number
    
    
    (in years)
    
    
    exercise price
    
    
    Number
    
    
    (in years)
    
    
    exercise price$7.83 to $9.39
    
    
    79,663
    
    
    
    6.9
    
    
    $
    9.05
    
    
    
    79,663
    
    
    
    6.9
    
    
    $
    9.05$9.40 to $10.96
    
    
    77,087
    
    
    
    6.1
    
    
    $
    10.47
    
    
    
    75,420
    
    
    
    6.1
    
    
    $
    10.47$10.97 to $15.66
    
    
    29,327
    
    
    
    5.2
    
    
    $
    15.21
    
    
    
    29,327
    
    
    
    5.2
    
    
    $
    15.21186,077
    
    
    
    6.3
    
    
    $
    10.61
    
    
    
    184,410
    
    
    
    6.3
    
    
    $
    10.61Expected to vest
    
    
    186,077
    
    
    
    6.3
    
    
    $
    10.61
 ($ in thousands)Aggregate intrinsic value of stock options outstanding
    
    $
    Aggregate intrinsic value of stock options expected to vest
    
    $
    Aggregate intrinsic value of stock options exercisable
    
    $
    
 Nonvested Stock
       Weighted AverageGrant DateNonvested Stock
    
    
    Fair ValueBalance, December 31, 2007
    
    
    115,191
    
    
    $
    12.89Granted
    
    
    100,500
    
    
    
    8.85Forfeited
    
    
    (3,000
    )
    
    
    10.39Vested
    
    
    (60,881
    )
    
    
    12.68Balance, June 30, 2008
    
    
    151,810
    
    
    $
    10.35
 9




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##### Table of Contents



Unrecognized
    
    
    Weighted-AverageCompensation
    
    
    AmortizationType of Award
    
    Expense ($00s)
    
    
    Period (in years)Stock Options
    
    $
    3
    
    
    
    0.41Nonvested Stock
    
    
    1,121
    
    
    
    1.66Potential Nonvested Stock Awards
    
    
    647
    
    
    
    2.71Total
    
    $
    1,771
    
    
    
    2.02
   Three Months Ended June 30, 2008
    
    
    Three Months Ended June 30, 2007Compensation
    
    
    Income Tax
    
    
    Compensation
    
    
    Income TaxType of Award
    
    Expense
    
    
    (Expense) Benefit
    
    
    Expense
    
    
    (Expense) Benefit(Unaudited in thousands)Stock Options
    
    $
    (125
    )
    
    $
    (49
    )
    
    $
    (208
    )
    
    $
    (81
    )Nonvested Stock
    
    
    285
    
    
    
    111
    
    
    
    372
    
    
    
    144Potential
Nonvested Stock
Awards
    
    
    47
    
    
    
    18
    
    
    
    
    
    
    
    Total
    
    $
    207
    
    
    $
    80
    
    
    $
    164
    
    
    $
    63
  Three Months Ended June 30, 2008
    
    
    Three Months Ended June 30, 2007Compensation
    
    
    Income Tax
    
    
    Compensation
    
    
    Income TaxType of Award
    
    Expense
    
    
    (Expense) Benefit
    
    
    Expense
    
    
    (Expense) Benefit(Unaudited in thousands)Stock Options
    
    $
    (51
    )
    
    $
    (20
    )
    
    $
    (2
    )
    
    $
    (1
    )Nonvested Stock
    
    
    553
    
    
    
    215
    
    
    
    658
    
    
    
    255Potential
Nonvested Stock
Awards
    
    
    47
    
    
    
    18
    
    
    
    
    
    
    
    Total
    
    $
    549
    
    
    $
    213
    
    
    $
    656
    
    
    $
    254
 4. Treasury Stock
    10




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##### Table of Contents



5. Dispositions and Discontinued Operations
 Dispositions
   Assets Held for Sale and Discontinued Operations
  a)
    
    Management commits to a plan to sell the asset;b)
    
    The asset is available for immediate sale in its present condition;c)
    
    An active marketing plan to sell the asset at a reasonable price has been initiated;d)
    
    The sale of the asset is probable within one year; ande)
    
    It is unlikely that significant changes to the plan to sell the asset will be made.
     
    
    $0.6 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $0.4 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
 
 11




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##### Table of Contents




    
    $0.9 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $0.4 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
   
    
    $1.3 million on the Holiday Inn Clarksburg, WV to reflect the estimated selling price,
net of selling costs;
    
    $0.6 million on the Holiday Inn Jamestown, NY to reflect the estimated selling price,
net of selling costs;
    
    $0.1 million on the University Plaza Bloomington, IN to record the final disposition of
the hotel; and
    
    $0.3 million related to various other held-for-sale properties primarily to write-off
the remaining net book value of disposed fixed assets.
  
    
    French Quarter Suites Memphis, TN
    
    Hilton Northfield, MI
    
    Holiday Inn Cromwell Bridge, MD
    
    Holiday Inn East Hartford, CT
    
    Holiday Inn Frisco, CO
    
    Holiday Inn Glen Burnie, MD
    
    former Holiday Inn Marietta, GA
    
    Holiday Inn Phoenix, AZ
    
    Holiday Inn Select Windsor, Ontario, Canada
  12




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##### Table of Contents



June 30, 2008
    
    
    December 31, 2007(Unaudited in thousands)Property and equipment, net
    
    $
    52,523
    
    
    $
    7,781Other assets
    
    
    3,074
    
    
    
    228Assets held for sale
    
    $
    55,597
    
    
    $
    8,009Other liabilities
    
    $
    3,382
    
    
    $
    961Long-term debt
    
    
    26,383
    
    
    
    Liabilities related to assets held for sale
    
    $
    29,765
    
    
    $
    961
  Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands)Total revenues
    
    $
    8,502
    
    
    $
    26,102
    
    
    $
    18,089
    
    
    $
    53,312Total expenses
    
    
    (7,113
    )
    
    
    (23,072
    )
    
    
    (17,268
    )
    
    
    (47,949
    )Impairment of long-lived assets
    
    
    (1,174
    )
    
    
    (679
    )
    
    
    (1,497
    )
    
    
    (2,250
    )Business interruption proceeds
    
    
    672
    
    
    
    272
    
    
    
    672
    
    
    
    272Interest income and other
    
    
    7
    
    
    
    15
    
    
    
    16
    
    
    
    29Interest expense
    
    
    (463
    )
    
    
    (1,084
    )
    
    
    (938
    )
    
    
    (3,116
    )Casualty gains, net
    
    
    5,583
    
    
    
    
    
    
    
    5,583
    
    
    
    2,658(Loss) gain on asset disposition
    
    
    
    
    
    
    (610
    )
    
    
    
    
    
    
    197Loss on extinguishment of debt
    
    
    (28
    )
    
    
    (1,192
    )
    
    
    (28
    )
    
    
    (1,192
    )Benefit (provision) for income taxes
    
    
    97
    
    
    
    (157
    )
    
    
    (75
    )
    
    
    (2,032
    )Income (loss) from discontinued operations
    
    $
    6,083
    
    
    $
    (405
    )
    
    $
    4,554
    
    
    $
    (71
    )
   6. Income (Loss) Per Share
  13




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##### Table of Contents



Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands, except per share data)Numerator:Income (loss) from
continuing operations
    
    $
    284
    
    
    $
    142
    
    
    $
    (5,705
    )
    
    $
    (349
    )Income (loss) from
discontinued operations
    
    
    6,083
    
    
    
    (405
    )
    
    
    4,554
    
    
    
    (71
    )Net income (loss)
attributable to common stock
    
    $
    6,367
    
    
    $
    (263
    )
    
    $
    (1,151
    )
    
    $
    (420
    )Denominator:Basic weighted average shares
    
    
    21,781
    
    
    
    24,483
    
    
    
    22,213
    
    
    
    24,490Diluted weighted average shares
    
    
    21,826
    
    
    
    24,483
    
    
    
    22,213
    
    
    
    24,490Basic income (loss) per common share:Income (loss) from
continuing operations
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.26
    )
    
    $
    (0.01
    )Income (loss) from
discontinued operations
    
    
    0.28
    
    
    
    (0.02
    )
    
    
    0.21
    
    
    
    Net income (loss)
attributable to common stock
    
    $
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )Diluted income (loss) per common share:Income (loss) from
continuing operations
    
    $
    0.01
    
    
    $
    0.01
    
    
    $
    (0.26
    )
    
    $
    (0.01
    )Income (loss) from
discontinued operations
    
    
    0.28
    
    
    
    (0.02
    )
    
    
    0.21
    
    
    
    Net income (loss)
attributable to common stock
    
    $
    0.29
    
    
    $
    (0.01
    )
    
    $
    (0.05
    )
    
    $
    (0.02
    )
    7. Long-Term Liabilities
  14




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June 30, 2008
    
    
    
    
    
    
    December 31, 2007Number
    
    
    Property, plant
    
    
    Long-term
    
    
    Long-termof Hotels
    
    
    and equipment, net
    
    
    obligations
    
    
    obligations
    
    

Interest rates at June 30, 2008(in thousands)Mortgage DebtMerrill Lynch Mortgage Lending, Inc.  Fixed
    
    
    19
    
    
    $
    247,263
    
    
    $
    146,917
    
    
    $
    153,940
    
    
    
    6.58%Goldman Sachs
    
    
    10
    
    
    
    118,534
    
    
    
    130,000
    
    
    
    130,000
    
    
    LIBOR plus 1.50%; capped at    8.50%Wachovia
    
    
    4
    
    
    
    31,693
    
    
    
    35,085
    
    
    
    35,425
    
    
    $9,574 at 6.03%; $3,021 at 5.78%; $22,490   at 6.04%$18,647 at LIBOR plus 2.90%, capped at      8.4%; $21,127 atIXIS
    
    
    4
    
    
    
    36,804
    
    
    
    39,774
    
    
    
    40,041
    
    
    LIBOR plus 2.95%, capped at     8.45%Total
    
    
    37
    
    
    
    434,294
    
    
    
    351,776
    
    
    
    359,406
    
    
    
    5.43 %(1)Long-term liabilities  otherTax notes issued pursuant to our Joint Plan
of Reorganization
    
    
    
    
    
    
    
    
    
    
    317
    
    
    
    633Other
    
    
    
    
    
    
    
    
    
    
    679
    
    
    
    781
    
    
    
    
    
    
    
    996
    
    
    
    1,414Property, plant and equipment  unencumbered
    
    
    7
    
    
    
    66,377
    
    
    
    
    
    
    
    44
    
    
    
    500,671
    
    
    
    352,772
    
    
    
    360,820Held for sale
    
    
    (9
    )
    
    
    (52,523
    )
    
    
    (26,944
    )
    
    
    Total (2)
    
    
    35
    
    
    $
    448,148
    
    
    $
    325,828
    
    
    $
    360,820
 
 
  8. Commitments and Contingencies
 Franchise Agreements and Capital Expenditures
   Three Months Ended June 30,
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    2008
    
    
    2007(Unaudited in thousands)Continuing operations
    
    $
    4,699
    
    
    $
    4,653
    
    
    $
    8,776
    
    
    $
    8,603Discontinued operations
    
    
    650
    
    
    
    2,035
    
    
    
    1,406
    
    
    
    3,984$
    5,349
    
    
    $
    6,688
    
    
    $
    10,182
    
    
    $
    12,587
   15




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##### Table of Contents




    
    Three hotels are in non-compliance of the
franchise agreement based on substandard guest satisfaction scores. If the Company does
not achieve scores above the required thresholds by the designated cure dates, these hotels
could be subject to default and termination based on the terms of the franchise agreements.
One of these hotels is held for sale.
    
    Three hotels are in default of the franchise agreements
because of substandard guest satisfaction scores. If the Company does not achieve scores
above the required thresholds by the designated cure dates, these hotels could be subject
to termination of the franchise agreements. The franchisor granted a six-month extension
with regard to one of these hotels, following the completion of major guest room
renovations. Based on the current guest satisfaction scores, management expects to receive
notification from the franchisor that the hotel has cured the default in the next 60 to 90
days. One of these hotels is held for sale.
    
    One hotel is in default of the franchise agreement for failure to complete a
Property Improvement Plan. The Company had not cured the default as of June 30, 2008, and
the hotels franchise agreement could be terminated by the franchisor. However, the
Company has met with the franchisor and is planning some additional capital improvements to
improve guest satisfaction for which the franchisor is expected to extend the default cure
period.
   Letters of Credit
  Self-insurance
   16




---



##### Table of Contents



Casualty gains (losses) and business interruption insurance
   Litigation
    9. Income Taxes
     17




---



##### Table of Contents



10. Recent Accounting Pronouncements
   . .
   18




---



##### Table of Contents



.
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 You should read the discussion below in conjunction with the unaudited condensed consolidated
financial statements and accompanying notes, set forth in Item I. Financial Statements included
in this Form 10-Q . Also, the discussion which follows contains forward-looking statements which
involve risks and uncertainties. Our actual results could differ materially from those anticipated
in these forward-looking statements as a result of various factors, including those discussed in
our Form 10-K for the year ended December 31, 2007.
 Executive Overview
    
    
    43 hotels that were wholly owned and operated through subsidiaries; and
 
    
    one hotel that we operate in a joint venture in the form of a limited partnership, in which a
Lodgian subsidiary serves as the general partner, has a 51% voting interest and exercises
significant control.
  Overview of Continuing Operations
  
    
    Second quarter revenues increased $0.2 million or 0.3%. Rooms revenues increased $0.1
million, or 0.3%, as occupancy rose 2.3% while average daily rate decreased 2.1%. We
maintained our market share as RevPAR index remained constant at 100% year over year.
Excluding hotels under renovation in the second quarter of both years, our RevPAR index rose
1.0% to 99.0% in 2008.
    
    Direct operating contribution decreased $0.2 million, or 0.5%, driven in large part to
higher employee medical insurance costs.
    
    Second quarter operating income decreased $3.6 million due primarily to a $4.8 million
impairment charge at our Crowne Plaza Worcester, MA hotel. Excluding this charge, operating
income increased $1.2 million due largely to lower corporate overhead.
 19




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##### Table of Contents



Overview of Discontinued Operations
     Critical Accounting Policies and Estimates
  Income Statement Overview
  Results of Operations  Continuing Operations
 The analysis below compares the results of operations for the three months ended June 30, 2008 and
2007.
 Revenues  Continuing Operations
 Three Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    49,364
    
    
    $
    49,224
    
    
    $
    140
    
    
    
    0.3
    %Food and beverage
    
    
    15,404
    
    
    
    15,323
    
    
    
    81
    
    
    
    0.5
    %Other
    
    
    2,138
    
    
    
    2,131
    
    
    
    7
    
    
    
    0.3
    %Total revenues
    
    $
    66,906
    
    
    $
    66,678
    
    
    $
    228
    
    
    
    0.3
    %Occupancy
    
    
    75.4
    %
    
    
    73.7
    %
    
    
    
    
    
    
    2.3
    %ADR
    
    $
    108.00
    
    
    $
    110.29
    
    
    $
    (2.29
    )
    
    
    (2.1
    %)RevPar
    
    $
    81.48
    
    
    $
    81.27
    
    
    $
    0.21
    
    
    
    0.3
    %
 20




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21




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##### Table of Contents



For the three months ended June 30, 2008 and 2007
Supplemental Operating Information
 Hotel
    
    Room
    
    
    
    Three Months Ended June 30,Count
    
    Count
    
    
    
    2008
    
    2007
    
    Increase (Decrease)35
    
    
    
    6,658
    
    
    All Continuing OperationsOccupancy
    
    
    75.4
    %
    
    
    73.7
    %
    
    
    
    
    
    
    2.3
    %ADR
    
    $
    108.00
    
    
    $
    110.29
    
    
    $
    (2.29
    )
    
    
    (2.1
    )%RevPAR
    
    $
    81.48
    
    
    $
    81.27
    
    
    $
    0.21
    
    
    
    0.3
    %RevPAR Index
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    
    
    
    
    0.0
    %28
    
    
    
    5,267
    
    
    Continuing Operations less hotels under renovation in the
second quarter 2007 and/or 2008Occupancy
    
    
    76.4
    %
    
    
    74.1
    %
    
    
    
    
    
    
    3.1
    %ADR
    
    $
    105.97
    
    
    $
    107.79
    
    
    $
    (1.82
    )
    
    
    (1.7
    )%RevPAR
    
    $
    80.94
    
    
    $
    79.89
    
    
    $
    1.05
    
    
    
    1.3
    %RevPAR Index
    
    
    99.0
    %
    
    
    98.0
    %
    
    
    
    
    
    
    1.0
    %12
    
    
    
    1,397
    
    
    Marriott HotelsOccupancy
    
    
    77.8
    %
    
    
    76.0
    %
    
    
    
    
    
    
    2.4
    %ADR
    
    $
    112.51
    
    
    $
    114.51
    
    
    $
    (2.00
    )
    
    
    (1.7
    )%RevPAR
    
    $
    87.54
    
    
    $
    87.02
    
    
    $
    0.52
    
    
    
    0.6
    %RevPAR Index
    
    
    111.5
    %
    
    
    113.6
    %
    
    
    
    
    
    
    (1.8
    )%2
    
    
    
    396
    
    
    Hilton HotelsOccupancy
    
    
    72.7
    %
    
    
    72.3
    %
    
    
    
    
    
    
    0.6
    %ADR
    
    $
    114.69
    
    
    $
    114.07
    
    
    $
    0.62
    
    
    
    0.5
    %RevPAR
    
    $
    83.42
    
    
    $
    82.43
    
    
    $
    0.99
    
    
    
    1.2
    %RevPAR Index
    
    
    99.7
    %
    
    
    98.8
    %
    
    
    
    
    
    
    0.9
    %17
    
    
    
    3,990
    
    
    IHG HotelsOccupancy
    
    
    75.9
    %
    
    
    74.4
    %
    
    
    
    
    
    
    2.0
    %ADR
    
    $
    108.05
    
    
    $
    111.03
    
    
    $
    (2.98
    )
    
    
    (2.7
    )%RevPAR
    
    $
    82.04
    
    
    $
    82.63
    
    
    $
    (0.59
    )
    
    
    (0.7
    )%RevPAR Index
    
    
    99.2
    %
    
    
    98.8
    %
    
    
    
    
    
    
    0.4
    %4
    
    
    
    875
    
    
    Other BrandsOccupancy
    
    
    70.7
    %
    
    
    67.3
    %
    
    
    
    
    
    
    5.1
    %ADR
    
    $
    96.74
    
    
    $
    97.11
    
    
    $
    (0.37
    )
    
    
    (0.4
    )%RevPAR
    
    $
    68.36
    
    
    $
    65.37
    
    
    $
    2.99
    
    
    
    4.6
    %RevPAR Index
    
    
    84.6
    %
    
    
    82.7
    %
    
    
    
    
    
    
    2.3
    %
 22




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##### Table of Contents



Direct operating expenses  Continuing Operations
 % of total revenuesThree Months Ended June 30,
    
    
    
    
    
    
    
    
    
    
    Three Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    12,179
    
    
    $
    11,725
    
    
    $
    454
    
    
    
    3.9
    %
    
    
    18.2
    %
    
    
    17.6
    %Food and beverage
    
    
    9,851
    
    
    
    9,918
    
    
    
    (67
    )
    
    
    (0.7
    %)
    
    
    14.7
    %
    
    
    14.9
    %Other
    
    
    1,537
    
    
    
    1,462
    
    
    
    75
    
    
    
    5.1
    %
    
    
    2.3
    %
    
    
    2.2
    %Total direct operating expenses
    
    $
    23,567
    
    
    $
    23,105
    
    
    $
    462
    
    
    
    2.0
    %
    
    
    35.2
    %
    
    
    34.7
    %Direct operating contribution (by revenue source):Rooms
    
    $
    37,185
    
    
    $
    37,499
    
    
    $
    (314
    )
    
    
    (0.8
    %)Food and beverage
    
    
    5,553
    
    
    
    5,405
    
    
    
    148
    
    
    
    2.7
    %Other
    
    
    601
    
    
    
    669
    
    
    
    (68
    )
    
    
    (10.2
    %)Total direct operating contribution
    
    $
    43,339
    
    
    $
    43,573
    
    
    $
    (234
    )
    
    
    (0.5
    %)Direct operating contribution % (by revenue source):Rooms
    
    
    75.3
    %
    
    
    76.2
    %Food and beverage
    
    
    36.0
    %
    
    
    35.3
    %Other
    
    
    28.1
    %
    
    
    31.4
    %Total direct operating contribution
    
    
    64.8
    %
    
    
    65.3
    %
     23




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Other operating expenses and operating income  Continuing Operations
 % of total revenuesThree Months Ended June 30,
    
    
    
    
    
    
    
    
    
    
    Three Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    3,761
    
    
    $
    3,714
    
    
    $
    47
    
    
    
    1.3
    %
    
    
    5.6
    %
    
    
    5.6
    %Advertising and promotion
    
    
    3,077
    
    
    
    3,358
    
    
    
    (281
    )
    
    
    (8.4
    %)
    
    
    4.6
    %
    
    
    5.0
    %Franchise fees
    
    
    4,699
    
    
    
    4,653
    
    
    
    46
    
    
    
    1.0
    %
    
    
    7.0
    %
    
    
    7.0
    %Repairs and maintenance
    
    
    3,005
    
    
    
    2,699
    
    
    
    306
    
    
    
    11.3
    %
    
    
    4.5
    %
    
    
    4.0
    %Utilities
    
    
    3,122
    
    
    
    2,967
    
    
    
    155
    
    
    
    5.2
    %
    
    
    4.7
    %
    
    
    4.4
    %Other expenses
    
    
    55
    
    
    
    212
    
    
    
    (157
    )
    
    
    (74.1
    %)
    
    
    0.1
    %
    
    
    0.3
    %Other hotel operating costs
    
    
    17,719
    
    
    
    17,603
    
    
    
    116
    
    
    
    0.7
    %
    
    
    26.5
    %
    
    
    26.4
    %Property and other taxes, insurance, and leases
    
    
    3,760
    
    
    
    4,418
    
    
    
    (658
    )
    
    
    (14.9
    %)
    
    
    5.6
    %
    
    
    6.6
    %Corporate and other
    
    
    3,484
    
    
    
    5,906
    
    
    
    (2,422
    )
    
    
    (41.0
    %)
    
    
    5.2
    %
    
    
    8.9
    %Depreciation and amortization
    
    
    7,989
    
    
    
    7,098
    
    
    
    891
    
    
    
    12.6
    %
    
    
    11.9
    %
    
    
    10.6
    %Impairment of long-lived assets
    
    
    5,580
    
    
    
    155
    
    
    
    5,425
    
    
    
    3500.0
    %
    
    
    8.3
    %
    
    
    0.2
    %Total other operating expenses
    
    $
    38,532
    
    
    $
    35,180
    
    
    $
    3,352
    
    
    
    9.5
    %
    
    
    57.6
    %
    
    
    52.8
    %Total operating expenses
    
    $
    62,099
    
    
    $
    58,285
    
    
    $
    3,814
    
    
    
    6.5
    %
    
    
    92.8
    %
    
    
    87.4
    %Operating income
    
    $
    4,807
    
    
    $
    8,393
    
    
    $
    (3,586
    )
    
    
    (42.7
    %)
    
    
    7.2
    %
    
    
    12.6
    %
   
    
    Repairs and maintenance increased $0.3 million, or 11.3%, compared to the prior year
primarily due to higher automotive maintenance costs, including fuel.
    
    Utilities increased $0.2 million, an increase of 30 basis points as a percentage of
total revenue, because of higher energy costs.
    
    Advertising and promotion costs decreased $0.3 million, or 8.4%, driven by cost
containment initiatives.
    
    Other expenses decreased $0.2 million. In the second quarter of 2007, we incurred costs
associated with a hotel brand conversion. Similar costs were not incurred in the second
quarter of 2008.
     24




---



##### Table of Contents



Non-operating
income (expenses)  Continuing Operations
 Three Months Ended June 30,2008
    
    2007
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Interest income and other
    
    $
    276

    
    $
    807

    
    $
    (531
    )
    
    
    (65.8
    %)Interest expense
    
    
    (4,775
    )

    
    (6,044
    )

    
    (1,269
    )
    
    
    (21.0
    %)Loss on debt extinguishment
    
    
    

    
    
    (3,330
    )

    
    (3,330
    )
    
    
    n/m
  The analysis below compares the results of operations for the six months ended June 30, 2008 and
2007.
 Revenues  Continuing Operations
 Six Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)(unaudited in thousands)Revenues:Rooms
    
    $
    93,212
    
    
    $
    92,045
    
    
    $
    1,167
    
    
    
    1.3
    %Food and beverage
    
    
    27,466
    
    
    
    27,803
    
    
    
    (337
    )
    
    
    (1.2
    %)Other
    
    
    4,200
    
    
    
    3,799
    
    
    
    401
    
    
    
    10.6
    %Total revenues
    
    $
    124,878
    
    
    $
    123,647
    
    
    $
    1,231
    
    
    
    1.0
    %Occupancy
    
    
    70.9
    %
    
    
    69.4
    %
    
    
    
    
    
    
    2.2
    %ADR
    
    $
    108.55
    
    
    $
    110.10
    
    
    $
    (1.55
    )
    
    
    (1.4
    %)RevPar
    
    $
    76.92
    
    
    $
    76.40
    
    
    $
    0.52
    
    
    
    0.7
    %
    25




---



##### Table of Contents



For the six months ended June 30, 2008 and 2007
Supplemental Operating Information
 Hotel
    
    Room
    
    
    
    Six Months Ended June 30,Count
    
    Count
    
    
    
    2008
    
    2007
    
    Increase (Decrease)35
    
    
    
    6,658
    
    
    All Continuing OperationsOccupancy
    
    
    70.9
    %
    
    
    69.4
    %
    
    
    
    
    
    
    2.2
    %ADR
    
    $
    108.55
    
    
    $
    110.10
    
    
    $
    (1.55
    )
    
    
    (1.4
    )%RevPAR
    
    $
    76.92
    
    
    $
    76.40
    
    
    $
    0.52
    
    
    
    0.7
    %RevPAR Index
    
    
    98.9
    %
    
    
    97.9
    %
    
    
    
    
    
    
    1.0
    %26
    
    
    
    4,711
    
    
    Continuing Operations less hotels under renovation in the
first and second quarters 2007 and/or 2008Occupancy
    
    
    72.5
    %
    
    
    70.2
    %
    
    
    
    
    
    
    3.3
    %ADR
    
    $
    105.48
    
    
    $
    106.35
    
    
    $
    (0.87
    )
    
    
    (0.8
    )%RevPAR
    
    $
    76.44
    
    
    $
    74.65
    
    
    $
    1.79
    
    
    
    2.4
    %RevPAR Index
    
    
    99.2
    %
    
    
    96.9
    %
    
    
    
    
    
    
    2.4
    %12
    
    
    
    1,397
    
    
    Marriott HotelsOccupancy
    
    
    72.0
    %
    
    
    71.0
    %
    
    
    
    
    
    
    1.4
    %ADR
    
    $
    113.45
    
    
    $
    114.58
    
    
    $
    (1.13
    )
    
    
    (1.0
    )%RevPAR
    
    $
    81.67
    
    
    $
    81.34
    
    
    $
    0.33
    
    
    
    0.4
    %RevPAR Index
    
    
    110.8
    %
    
    
    113.5
    %
    
    
    
    
    
    
    (2.4
    )%2
    
    
    
    396
    
    
    Hilton HotelsOccupancy
    
    
    65.8
    %
    
    
    64.4
    %
    
    
    
    
    
    
    2.2
    %ADR
    
    $
    112.59
    
    
    $
    112.97
    
    
    $
    (0.38
    )
    
    
    (0.3
    )%RevPAR
    
    $
    74.12
    
    
    $
    72.80
    
    
    $
    1.32
    
    
    
    1.8
    %RevPAR Index
    
    
    97.5
    %
    
    
    94.7
    %
    
    
    
    
    
    
    3.0
    %17
    
    
    
    3,990
    
    
    IHG HotelsOccupancy
    
    
    71.4
    %
    
    
    70.3
    %
    
    
    
    
    
    
    1.6
    %ADR
    
    $
    108.35
    
    
    $
    109.73
    
    
    $
    (1.38
    )
    
    
    (1.3
    )%RevPAR
    
    $
    77.36
    
    
    $
    77.12
    
    
    $
    0.24
    
    
    
    0.3
    %RevPAR Index
    
    
    98.8
    %
    
    
    96.8
    %
    
    
    
    
    
    
    2.1
    %4
    
    
    
    875
    
    
    Other BrandsOccupancy
    
    
    68.9
    %
    
    
    65.0
    %
    
    
    
    
    
    
    6.0
    %ADR
    
    $
    99.56
    
    
    $
    102.82
    
    
    $
    (3.26
    )
    
    
    (3.2
    )%RevPAR
    
    $
    68.60
    
    
    $
    66.83
    
    
    $
    1.77
    
    
    
    2.6
    %RevPAR Index
    
    
    81.5
    %
    
    
    80.4
    %
    
    
    
    
    
    
    1.4
    %
 26




---



##### Table of Contents



Direct operating expenses  Continuing Operations
 % of total revenuesSix Months Ended June 30,
    
    
    
    
    
    
    
    
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Direct operating expenses:Rooms
    
    $
    23,362
    
    
    $
    22,339
    
    
    $
    1,023
    
    
    
    4.6
    %
    
    
    18.7
    %
    
    
    18.1
    %Food and beverage
    
    
    18,670
    
    
    
    18,753
    
    
    
    (83
    )
    
    
    (0.4
    %)
    
    
    15.0
    %
    
    
    15.2
    %Other
    
    
    2,925
    
    
    
    2,704
    
    
    
    221
    
    
    
    8.2
    %
    
    
    2.3
    %
    
    
    2.2
    %Total direct operating expenses
    
    $
    44,957
    
    
    $
    43,796
    
    
    $
    1,161
    
    
    
    2.7
    %
    
    
    36.0
    %
    
    
    35.4
    %Direct operating contribution (by revenue source):Rooms
    
    $
    69,850
    
    
    $
    69,706
    
    
    $
    144
    
    
    
    0.2
    %Food and beverage
    
    
    8,796
    
    
    
    9,050
    
    
    
    (254
    )
    
    
    (2.8
    %)Other
    
    
    1,275
    
    
    
    1,095
    
    
    
    180
    
    
    
    16.4
    %Total direct operating contribution
    
    $
    79,921
    
    
    $
    79,851
    
    
    $
    70
    
    
    
    0.1
    %Direct operating contribution % (by revenue source):Rooms
    
    
    74.9
    %
    
    
    75.7
    %Food and beverage
    
    
    32.0
    %
    
    
    32.6
    %Other
    
    
    30.4
    %
    
    
    28.8
    %Total direct operating contribution
    
    
    64.0
    %
    
    
    64.6
    %
    27




---



##### Table of Contents



Other operating expenses and operating income  Continuing Operations
 % of total revenuesSix Months Ended June 30,
    
    
    
    
    
    
    
    
    
    
    Six Months Ended June 30,2008
    
    
    2007
    
    
    Increase (decrease)
    
    
    2008
    
    
    2007(unaudited in thousands)Other operating expenses:Other hotel operating costsGeneral and administrative
    
    $
    7,761
    
    
    $
    7,399
    
    
    $
    362
    
    
    
    4.9
    %
    
    
    6.2
    %
    
    
    6.0
    %Advertising and promotion
    
    
    6,536
    
    
    
    6,592
    
    
    
    (56
    )
    
    
    (0.8
    %)
    
    
    5.2
    %
    
    
    5.3
    %Franchise fees
    
    
    8,776
    
    
    
    8,603
    
    
    
    173
    
    
    
    2.0
    %
    
    
    7.0
    %
    
    
    7.0
    %Repairs and maintenance
    
    
    5,871
    
    
    
    5,470
    
    
    
    401
    
    
    
    7.3
    %
    
    
    4.7
    %
    
    
    4.4
    %Utilities
    
    
    6,425
    
    
    
    6,216
    
    
    
    209
    
    
    
    3.4
    %
    
    
    5.1
    %
    
    
    5.0
    %Other expenses
    
    
    229
    
    
    
    212
    
    
    
    17
    
    
    
    8.0
    %
    
    
    0.2
    %
    
    
    0.2
    %Other hotel operating costs
    
    
    35,598
    
    
    
    34,492
    
    
    
    1,106
    
    
    
    3.2
    %
    
    
    28.5
    %
    
    
    27.9
    %Property and other taxes, insurance, and leases
    
    
    8,112
    
    
    
    9,242
    
    
    
    (1,130
    )
    
    
    (12.2
    %)
    
    
    6.5
    %
    
    
    7.5
    %Corporate and other
    
    
    9,369
    
    
    
    11,569
    
    
    
    (2,200
    )
    
    
    (19.0
    %)
    
    
    7.5
    %
    
    
    9.4
    %Casualty (gains) losses, net
    
    
    
    
    
    
    (1,867
    )
    
    
    1,867
    
    
    
    (100.0
    %)
    
    
    0.0
    %
    
    
    (1.5
    %)Depreciation and amortization
    
    
    15,458
    
    
    
    14,075
    
    
    
    1,383
    
    
    
    9.8
    %
    
    
    12.4
    %
    
    
    11.4
    %Impairment of long-lived assets
    
    
    7,721
    
    
    
    314
    
    
    
    7,407
    
    
    
    2358.9
    %
    
    
    6.2
    %
    
    
    0.3
    %Total other operating expenses
    
    $
    76,258
    
    
    $
    67,825
    
    
    $
    8,433
    
    
    
    12.4
    %
    
    
    61.1
    %
    
    
    54.9
    %Total operating expenses
    
    $
    121,215
    
    
    $
    111,621
    
    
    $
    9,594
    
    
    
    8.6
    %
    
    
    97.1
    %
    
    
    90.3
    %Operating income
    
    $
    3,663
    
    
    $
    12,026
    
    
    $
    (8,363
    )
    
    
    (69.5
    %)
    
    
    2.9
    %
    
    
    9.7
    %
   
    
    Repairs and maintenance increased $0.4 million, or 7.3%, compared to the prior year
primarily due to higher automotive maintenance costs, including fuel.
    
    Hotel general and administrative costs increased $0.4 million, or 4.9%, as we benefited
from sales tax credits and bad debt recoveries in 2007.
    
    Franchise fees increased $0.2 million, or 2.0%, but remained constant as a percentage of
total revenues.
    
    Utilities increased $0.2 million, an increase of 10 basis points as a percentage of
total revenue, due to higher energy costs.
    Non-operating income (expenses)  Continuing Operations
 28




---



##### Table of Contents



Six Months Ended June 30,2008
    
    2007
    
    Increase (decrease)(unaudited in thousands)Non-operating income (expenses):Interest income and other
    
    $
    666

    
    $
    1,719

    
    $
    (1,053
    )
    
    
    (61.3
    %)Interest expense
    
    
   (9,947
    )

    
    (11,422
    )

    
    (1,475
    )
    
    
    (12.9
    %)Loss on debt extinguishment
    
    
    

    
    
    (3,330
    )

    
    (3,330
    )
    
    
    n/m
  Results of Operations  Discontinued Operations
    
    
    $0.6 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $0.4 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
  
    
    $0.9 million on the Hilton Northfield, MI to reflect the current estimated selling
price, net of selling costs;
    
    $0.4 million on the Holiday Inn East Hartford, CT to reflect the current estimated
selling price, net of selling costs;
    
    $0.1 million on the former Holiday Inn St. Paul, MN to record the final disposition of
the hotel; and
    
    $0.1 million to record the final disposition of the Holiday Inn Frederick, MD as well as
the disposal of replaced assets at various hotels.
   
    
    $1.3 million on the Holiday Inn Clarksburg, WV to reflect the estimated selling price,
net of selling costs;
    
    $0.6 million on the Holiday Inn Jamestown, NY to reflect the estimated selling price,
net of selling costs;
    
    $0.1 million on the University Plaza Bloomington, IN to record the final disposition of
the hotel; and
 29




---



##### Table of Contents




    
    $0.3 million related to various other held-for-sale properties primarily to write-off
the remaining net book value of disposed fixed assets.
    Income Taxes
     30




---



##### Table of Contents



Additional Financial Information Regarding Quarterly Results of Our Continuing Operations
  2008
    
    
    2007
    
    
    2006Second
    
    
    First
    
    
    Fourth
    
    
    Third
    
    
    Second
    
    
    First
    
    
    Fourth
    
    
    ThirdQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Unaudited in thousands)Revenues:Rooms
    
    $
    49,364
    
    
    $
    43,848
    
    
    $
    40,730
    
    
    $
    46,942
    
    
    $
    49,224
    
    
    $
    42,821
    
    
    $
    39,510
    
    
    $
    43,757Food and beverage
    
    
    15,404
    
    
    
    12,062
    
    
    
    14,429
    
    
    
    12,857
    
    
    
    15,323
    
    
    
    12,480
    
    
    
    13,670
    
    
    
    11,530Other
    
    
    2,138
    
    
    
    2,062
    
    
    
    1,819
    
    
    
    2,134
    
    
    
    2,131
    
    
    
    1,668
    
    
    
    1,775
    
    
    
    1,83666,906
    
    
    
    57,972
    
    
    
    56,978
    
    
    
    61,933
    
    
    
    66,678
    
    
    
    56,969
    
    
    
    54,955
    
    
    
    57,123Direct operating expenses:Rooms
    
    
    12,179
    
    
    
    11,183
    
    
    
    10,497
    
    
    
    11,997
    
    
    
    11,725
    
    
    
    10,614
    
    
    
    10,481
    
    
    
    11,304Food and beverage
    
    
    9,851
    
    
    
    8,819
    
    
    
    9,054
    
    
    
    9,432
    
    
    
    9,918
    
    
    
    8,835
    
    
    
    9,161
    
    
    
    8,607Other
    
    
    1,537
    
    
    
    1,388
    
    
    
    1,288
    
    
    
    1,512
    
    
    
    1,462
    
    
    
    1,242
    
    
    
    1,275
    
    
    
    1,36923,567
    
    
    
    21,390
    
    
    
    20,839
    
    
    
    22,941
    
    
    
    23,105
    
    
    
    20,691
    
    
    
    20,917
    
    
    
    21,28043,339
    
    
    
    36,582
    
    
    
    36,139
    
    
    
    38,992
    
    
    
    43,573
    
    
    
    36,278
    
    
    
    34,038
    
    
    
    35,843Other operating expenses:Other hotel operating costs
    
    
    17,719
    
    
    
    17,879
    
    
    
    16,285
    
    
    
    17,847
    
    
    
    17,603
    
    
    
    16,889
    
    
    
    15,433
    
    
    
    16,227Property and other taxes, insurance and leases
    
    
    3,760
    
    
    
    4,352
    
    
    
    4,334
    
    
    
    4,087
    
    
    
    4,418
    
    
    
    4,824
    
    
    
    4,578
    
    
    
    5,008Corporate and other
    
    
    3,484
    
    
    
    5,885
    
    
    
    4,248
    
    
    
    5,575
    
    
    
    5,906
    
    
    
    5,663
    
    
    
    4,936
    
    
    
    5,586Casualty (gain) losses, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,867
    )
    
    
    
    
    
    
    (3,085
    )Restructuring
    
    
    
    
    
    
    
    
    
    
    (25
    )
    
    
    1,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation and amortization
    
    
    7,989
    
    
    
    7,469
    
    
    
    7,464
    
    
    
    7,226
    
    
    
    7,098
    
    
    
    6,977
    
    
    
    6,972
    
    
    
    7,070Impairment of long-lived assets
    
    
    5,580
    
    
    
    2,141
    
    
    
    796
    
    
    
    512
    
    
    
    155
    
    
    
    159
    
    
    
    147
    
    
    
    281Other operating expenses
    
    
    38,532
    
    
    
    37,726
    
    
    
    33,102
    
    
    
    36,505
    
    
    
    35,180
    
    
    
    32,645
    
    
    
    32,066
    
    
    
    31,087Operating (loss) income
    
    
    4,807
    
    
    
    (1,144
    )
    
    
    3,037
    
    
    
    2,487
    
    
    
    8,393
    
    
    
    3,633
    
    
    
    1,972
    
    
    
    4,756Other income (expenses):Business interruption insurance proceeds
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47
    )
    
    
    2,447Interest income and other
    
    
    276
    
    
    
    390
    
    
    
    912
    
    
    
    1,312
    
    
    
    807
    
    
    
    912
    
    
    
    651
    
    
    
    770Other interest expense
    
    
    (4,775
    )
    
    
    (5,172
    )
    
    
    (5,790
    )
    
    
    (5,958
    )
    
    
    (6,044
    )
    
    
    (5,378
    )
    
    
    (5,452
    )
    
    
    (5,632
    )Loss on debt extinguishment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,330
    )
    
    
    
    
    
    
    
    
    
    
    Income (loss) before income taxes and minority interests
    
    
    308
    
    
    
    (5,926
    )
    
    
    (1,841
    )
    
    
    (2,159
    )
    
    
    (174
    )
    
    
    (833
    )
    
    
    (2,876
    )
    
    
    2,341Minority interests (net of taxes, nil)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (56
    )
    
    
    (365
    )
    
    
    335
    
    
    
    100Income (loss) before income taxes  continuing operations
    
    
    308
    
    
    
    (5,926
    )
    
    
    (1,841
    )
    
    
    (2,159
    )
    
    
    (230
    )
    
    
    (1,198
    )
    
    
    (2,541
    )
    
    
    2,441(Provision) benefit for income taxes  continuing operations
    
    
    (24
    )
    
    
    (63
    )
    
    
    (2,262
    )
    
    
    1,027
    
    
    
    372
    
    
    
    707
    
    
    
    (9,154
    )
    
    
    (1,314
    )Income (loss) from continuing operations
    
    
    284
    
    
    
    (5,989
    )
    
    
    (4,103
    )
    
    
    (1,132
    )
    
    
    142
    
    
    
    (491
    )
    
    
    (11,695
    )
    
    
    1,127Discontinued operations:Income (loss) from discontinued operations before income taxes
    
    
    5,986
    
    
    
    (1,357
    )
    
    
    (5,824
    )
    
    
    1,818
    
    
    
    (248
    )
    
    
    2,209
    
    
    
    (13,527
    )
    
    
    (2,034
    )Benefit (provision) for income taxes
    
    
    97
    
    
    
    (172
    )
    
    
    1,854
    
    
    
    (639
    )
    
    
    (157
    )
    
    
    (1,875
    )
    
    
    4,509
    
    
    
    1,069Income (loss) from discontinued operations
    
    
    6,083
    
    
    
    (1,529
    )
    
    
    (3,970
    )
    
    
    1,179
    
    
    
    (405
    )
    
    
    334
    
    
    
    (9,018
    )
    
    
    (965
    )Net income (loss) attributable to common stock
    
    $
    6,367
    
    
    $
    (7,518
    )
    
    $
    (8,073
    )
    
    $
    47
    
    
    $
    (263
    )
    
    $
    (157
    )
    
    $
    (20,713
    )
    
    $
    162
 Hotel data by market segment and region
 Hotel data by market segment
   
    
    Upper Upscale: Hilton and Marriott;
    
    Upscale: Courtyard by Marriott, Crowne Plaza, Four Points by Sheraton, Radisson,
Residence Inn by Marriott, SpringHill Suites by Marriott and Wyndham;
 31




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##### Table of Contents




    
    Midscale with Food & Beverage: Holiday Inn, Holiday Inn Select; and
    
    Midscale without Food & Beverage: Fairfield Inn by Marriott and Holiday Inn Express.
 Combined Continuing and Discontinued Operations  43 hotels (excludes 1 hotel)
 Three Months Ended
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Upper UpscaleNumber of properties
    
    
    4
    
    
    
    4
    
    
    
    4
    
    
    
    4Number of rooms
    
    
    825
    
    
    
    825
    
    
    
    825
    
    
    
    825Occupancy
    
    
    74.9
    %
    
    
    74.8
    %
    
    
    69.7
    %
    
    
    70.8
    %Average daily rate
    
    $
    121.46
    
    
    $
    121.83
    
    
    $
    120.33
    
    
    $
    120.65RevPAR
    
    $
    91.03
    
    
    $
    91.19
    
    
    $
    83.85
    
    
    $
    85.38UpscaleNumber of properties
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    20Number of rooms
    
    
    4,052
    
    
    
    3,580
    
    
    
    4,052
    
    
    
    3,580Occupancy
    
    
    75.7
    %
    
    
    73.5
    %
    
    
    72.5
    %
    
    
    70.8
    %Average daily rate
    
    $
    107.42
    
    
    $
    110.06
    
    
    $
    111.01
    
    
    $
    114.07RevPAR
    
    $
    81.35
    
    
    $
    80.86
    
    
    $
    80.47
    
    
    $
    80.77Midscale with Food & BeverageNumber of properties
    
    
    14
    
    
    
    16
    
    
    
    14
    
    
    
    16Number of rooms
    
    
    2,699
    
    
    
    3,171
    
    
    
    2,699
    
    
    
    3,171Occupancy
    
    
    72.1
    %
    
    
    71.4
    %
    
    
    67.4
    %
    
    
    66.8
    %Average daily rate
    
    $
    100.86
    
    
    $
    104.41
    
    
    $
    97.90
    
    
    $
    99.78RevPAR
    
    $
    72.67
    
    
    $
    74.59
    
    
    $
    65.98
    
    
    $
    66.66Midscale without Food & BeverageNumber of properties
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Number of rooms
    
    
    244
    
    
    
    244
    
    
    
    244
    
    
    
    244Occupancy
    
    
    54.4
    %
    
    
    62.2
    %
    
    
    55.0
    %
    
    
    60.1
    %Average daily rate
    
    $
    91.24
    
    
    $
    89.64
    
    
    $
    103.94
    
    
    $
    98.12RevPAR
    
    $
    49.68
    
    
    $
    55.75
    
    
    $
    57.18
    
    
    $
    58.99Independent HotelsNumber of properties
    
    
    1
    
    
    
    1
    
    
    
    1
    
    
    
    1Number of rooms
    
    
    105
    
    
    
    105
    
    
    
    105
    
    
    
    105Occupancy
    
    
    34.2
    %
    
    
    61.4
    %
    
    
    34.7
    %
    
    
    58.9
    %Average daily rate
    
    $
    58.62
    
    
    $
    48.09
    
    
    $
    57.01
    
    
    $
    47.91RevPAR
    
    $
    20.06
    
    
    $
    29.51
    
    
    $
    19.77
    
    
    $
    28.20All HotelsNumber of properties
    
    
    43
    
    
    
    43
    
    
    
    43
    
    
    
    43Number of rooms
    
    
    7,925
    
    
    
    7,925
    
    
    
    7,925
    
    
    
    7,925Occupancy
    
    
    73.2
    %
    
    
    72.3
    %
    
    
    69.4
    %
    
    
    68.7
    %Average daily rate
    
    $
    106.04
    
    
    $
    107.85
    
    
    $
    107.12
    
    
    $
    108.03RevPAR
    
    $
    77.62
    
    
    $
    77.97
    
    
    $
    74.37
    
    
    $
    74.23
 32




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##### Table of Contents



Continuing Operations  35 hotels (excludes 9 held for sale hotels)
 Three Months Ended
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Upper UpscaleNumber of properties
    
    
    3
    
    
    
    3
    
    
    
    3
    
    
    
    3Number of rooms
    
    
    634
    
    
    
    634
    
    
    
    634
    
    
    
    634Occupancy
    
    
    74.4
    %
    
    
    77.1
    %
    
    
    68.6
    %
    
    
    72.4
    %Average daily rate
    
    $
    128.32
    
    
    $
    127.71
    
    
    $
    127.48
    
    
    $
    126.48RevPAR
    
    $
    95.54
    
    
    $
    98.48
    
    
    $
    87.49
    
    
    $
    91.55UpscaleNumber of properties
    
    
    22
    
    
    
    20
    
    
    
    22
    
    
    
    22Number of rooms
    
    
    4,052
    
    
    
    3,580
    
    
    
    4,052
    
    
    
    4,052Occupancy
    
    
    75.7
    %
    
    
    73.5
    %
    
    
    72.5
    %
    
    
    70.8
    %Average daily rate
    
    $
    107.42
    
    
    $
    110.06
    
    
    $
    111.01
    
    
    $
    114.07RevPAR
    
    $
    81.35
    
    
    $
    80.86
    
    
    $
    80.47
    
    
    $
    80.77Midscale with Food & BeverageNumber of properties
    
    
    8
    
    
    
    10
    
    
    
    8
    
    
    
    8Number of rooms
    
    
    1,728
    
    
    
    2,200
    
    
    
    1,728
    
    
    
    1,728Occupancy
    
    
    78.1
    %
    
    
    74.3
    %
    
    
    70.1
    %
    
    
    67.2
    %Average daily rate
    
    $
    103.87
    
    
    $
    107.38
    
    
    $
    96.30
    
    
    $
    0.00RevPAR
    
    $
    81.09
    
    
    $
    79.81
    
    
    $
    67.51
    
    
    $
    66.86Midscale without Food & BeverageNumber of properties
    
    
    2
    
    
    
    2
    
    
    
    2
    
    
    
    2Number of rooms
    
    
    244
    
    
    
    244
    
    
    
    244
    
    
    
    244Occupancy
    
    
    54.4
    %
    
    
    62.2
    %
    
    
    55.0
    %
    
    
    60.1
    %Average daily rate
    
    $
    91.24
    
    
    $
    89.64
    
    
    $
    103.94
    
    
    $
    98.12RevPAR
    
    $
    49.68
    
    
    $
    55.75
    
    
    $
    57.18
    
    
    $
    58.99All HotelsNumber of properties
    
    
    35
    
    
    
    35
    
    
    
    35
    
    
    
    35Number of rooms
    
    
    6,658
    
    
    
    6,658
    
    
    
    6,658
    
    
    
    6,658Occupancy
    
    
    75.4
    %
    
    
    73.7
    %
    
    
    70.9
    %
    
    
    69.4
    %Average daily rate
    
    $
    108.00
    
    
    $
    110.29
    
    
    $
    108.55
    
    
    $
    110.10RevPAR
    
    $
    81.48
    
    
    $
    81.27
    
    
    $
    76.92
    
    
    $
    76.40
 33




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##### Table of Contents



Hotel data by region
   
    
    Northeast: Canada, Connecticut, Massachusetts, Maryland, New Hampshire, New York,
Ohio, Pennsylvania;
    
    Southeast: Florida, Georgia, Kentucky, Louisiana, North Carolina, South Carolina,
Tennessee;
    
    Midwest: Arkansas, Indiana, Michigan, Oklahoma, Texas; and
    
    West: Arizona, California, Colorado, New Mexico.
 34




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##### Table of Contents



Combined Continuing and Discontinued Operations  43 hotels (excludes 1 hotel)
 Three Months Ended
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Northeast RegionNumber of properties
    
    
    17
    
    
    
    17
    
    
    
    17
    
    
    
    17Number of rooms
    
    
    3,462
    
    
    
    3,462
    
    
    
    3,462
    
    
    
    3,462Occupancy
    
    
    73.4
    %
    
    
    72.4
    %
    
    
    66.5
    %
    
    
    66.9
    %Average daily rate
    
    $
    108.01
    
    
    $
    109.60
    
    
    $
    106.10
    
    
    $
    105.99RevPAR
    
    $
    79.29
    
    
    $
    79.38
    
    
    $
    70.57
    
    
    $
    70.89Southeast RegionNumber of properties
    
    
    11
    
    
    
    11
    
    
    
    11
    
    
    
    11Number of rooms
    
    
    1,729
    
    
    
    1,729
    
    
    
    1,729
    
    
    
    1,729Occupancy
    
    
    75.8
    %
    
    
    77.0
    %
    
    
    71.1
    %
    
    
    71.0
    %Average daily rate
    
    $
    111.59
    
    
    $
    113.05
    
    
    $
    112.09
    
    
    $
    114.14RevPAR
    
    $
    84.58
    
    
    $
    87.10
    
    
    $
    79.71
    
    
    $
    81.04Midwest RegionNumber of properties
    
    
    8
    
    
    
    8
    
    
    
    8
    
    
    
    8Number of rooms
    
    
    1,418
    
    
    
    1,418
    
    
    
    1,418
    
    
    
    1,418Occupancy
    
    
    73.2
    %
    
    
    67.1
    %
    
    
    70.0
    %
    
    
    63.2
    %Average daily rate
    
    $
    99.62
    
    
    $
    100.14
    
    
    $
    98.85
    
    
    $
    99.82RevPAR
    
    $
    72.88
    
    
    $
    67.17
    
    
    $
    69.15
    
    
    $
    63.13West RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316
    
    
    
    1,316Occupancy
    
    
    69.2
    %
    
    
    71.3
    %
    
    
    74.3
    %
    
    
    76.4
    %Average daily rate
    
    $
    99.91
    
    
    $
    103.60
    
    
    $
    111.66
    
    
    $
    112.59RevPAR
    
    $
    69.19
    
    
    $
    73.88
    
    
    $
    82.97
    
    
    $
    86.02All HotelsNumber of properties
    
    
    43
    
    
    
    43
    
    
    
    43
    
    
    
    43Number of rooms
    
    
    7,925
    
    
    
    7,925
    
    
    
    7,925
    
    
    
    7,925Occupancy
    
    
    73.2
    %
    
    
    72.3
    %
    
    
    69.4
    %
    
    
    68.7
    %Average daily rate
    
    $
    106.04
    
    
    $
    107.85
    
    
    $
    107.12
    
    
    $
    108.03RevPAR
    
    $
    77.62
    
    
    $
    77.97
    
    
    $
    74.37
    

    
    $
    74.23
 35




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##### Table of Contents



Continuing Operations  35 hotels (excludes 9 held for sale hotels)
 Three Months Ended
    
    Six Months EndedJune 30, 2008
    
    
    June 30, 2007
    
    
    June 30, 2008
    
    
    June 30, 2007Northeast RegionNumber of properties
    
    
    13
    
    
    
    13
    
    
    
    13
    
    
    
    13Number of rooms
    
    
    2,852
    
    
    
    2,852
    
    
    
    2,852
    
    
    
    2,852Occupancy
    
    
    74.4
    %
    
    
    72.2
    %
    
    
    67.2
    %
    
    
    66.8
    %Average daily rate
    
    $
    109.94
    
    
    $
    112.08
    
    
    $
    107.59
    
    
    $
    108.53RevPAR
    
    $
    81.78
    
    
    $
    80.97
    
    
    $
    72.29
    
    
    $
    72.51Southeast RegionNumber of properties
    
    
    10
    
    
    
    10
    
    
    
    10
    
    
    
    10Number of rooms
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624
    
    
    
    1,624Occupancy
    
    
    78.5
    %
    
    
    78.1
    %
    
    
    73.5
    %
    
    
    71.8
    %Average daily rate
    
    $
    113.08
    
    
    $
    116.35
    
    
    $
    113.77
    
    
    $
    117.65RevPAR
    
    $
    88.75
    
    
    $
    90.83
    
    
    $
    83.59
    
    
    $
    84.46Midwest RegionNumber of properties
    
    
    7
    
    
    
    7
    
    
    
    7
    
    
    
    7Number of rooms
    
    
    1,227
    
    
    
    1,227
    
    
    
    1,227
    
    
    
    1,227Occupancy
    
    
    72.6
    %
    
    
    67.0
    %
    
    
    69.5
    %
    
    
    62.9
    %Average daily rate
    
    $
    99.67
    
    
    $
    100.25
    
    
    $
    98.97
    
    
    $
    99.92RevPAR
    
    $
    72.38
    
    
    $
    67.20
    
    
    $
    68.75
    
    
    $
    62.85West RegionNumber of properties
    
    
    5
    
    
    
    5
    
    
    
    5
    
    
    
    5Number of rooms
    
    
    955
    
    
    
    955
    
    
    
    955
    
    
    
    955Occupancy
    
    
    77.0
    %
    
    
    79.1
    %
    
    
    79.2
    %
    
    
    81.3
    %Average daily rate
    
    $
    103.74
    
    
    $
    106.14
    
    
    $
    113.54
    
    
    $
    112.73RevPAR
    
    $
    79.88
    
    
    $
    83.93
    
    
    $
    89.93
    
    
    $
    91.68All HotelsNumber of properties
    
    
    35
    
    
    
    35
    
    
    
    35
    
    
    
    35Number of rooms
    
    
    6,658
    
    
    
    6,658
    
    
    
    6,658
    
    
    
    6,658Occupancy
    
    
    75.4
    %
    
    
    73.7
    %
    
    
    70.9
    %
    
    
    69.4
    %Average daily rate
    
    $
    108.00
    
    
    $
    110.29
    
    
    $
    108.55
    
    
    $
    110.10RevPAR
    
    $
    81.48
    
    
    $
    81.27
    
    
    $
    76.92
    

    
    $
    76.40
 36




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##### Table of Contents



Liquidity and Capital Resources
 Working Capital
          Cash Flow
  Operating activities
  37




---



##### Table of Contents



Investing activities
   Financing activities
   Debt and Contractual Obligations
  Off Balance Sheet Arrangements
  Market Risk
    Forward-looking Statements
  38




---



##### Table of Contents




    
    The effects of regional, national and international economic conditions;
    
    Competitive conditions in the lodging industry and increases in room supply;
    
    The effects of actual and threatened terrorist attacks and international
conflicts in the Middle East and elsewhere, and their impact on domestic and
international travel;
    
    The effectiveness of changes in management and our ability to retain qualified
individuals to serve in senior management positions;
    
    Requirements of franchise agreements, including the right of franchisors to
immediately terminate their respective agreements if we breach certain provisions;
    
    Our ability to complete planned hotel dispositions;
    
    Seasonality of the hotel business;
    
    The effects of unpredictable weather events such as hurricanes;
    
    The financial condition of the airline industry and its impact on air travel;
    
    The effect that Internet reservation channels may have on the rates that we are
able to charge for hotel rooms;
    
    Increases in the cost of debt and our continued compliance with the terms of our
loan agreements;
    
    The effect of the majority of our assets being encumbered on our borrowings and
future growth;
    
    Our ability to meet the continuing listing requirements of the American Stock
Exchange;
    
    The effect of self-insured claims in excess of our reserves, or our ability to
obtain adequate property and liability insurance to protect against losses, or to obtain
insurance at reasonable rates;
    
    Potential litigation and/or governmental inquiries and investigations;
    
    Laws and regulations applicable to our business, including federal, state or
local hotel, resort, restaurant or land use regulations, employment, labor or disability
laws and regulations;
    
    A downturn in the economy due to several factors, including but not limited to,
high energy costs, natural gas and gasoline prices; and
    
    The risks identified in our Form 10-K under Risks Related to Our Business and
Risks Related to Our Common Stock.
  Inflation
  39




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   40




---



##### Table of Contents



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
     
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
  Total Number of
    
    
    Maximum Dollar Amount ofShares Purchased as
    
    
    Shares That May Yet BeTotal Number of
    
    
    Average Price
    
    
    Part of Publicly
    
    
    Purchased Under theShares
    
    
    Paid Per Share
    
    
    Announced Plans or
    
    
    Publicly Announced Plans orPeriod
    
    Purchased (1)
    
    
    (2)
    
    
    Programs
    
    
    ProgramsApril 2008
    
    
    128,713
    
    
    $
    11.18
    
    
    
    127,713
    
    
    $
    10,000,000May 2008
    
    
    47,752
    
    
    $
    9.00
    
    
    
    46,679
    
    
    $
    9,581,399June 2008
    
    
    124,954
    
    
    $
    8.30
    
    
    
    124,954
    
    
    $
    8,544,461301,419
    
    
    $
    9.59
    
    
    
    299,346
 
 (1)
   
    The total number of shares purchased includes: (a)
    
    shares purchased pursuant to the August 2007 share repurchase program, which granted
a maximum of $30 million of repurchase authority expiring in August 2009. The remaining
authority under this program was fulfilled in April 2008.(b)
    
    shares purchased pursuant to the April 2008 share repurchase program, which granted
a maximum of $10 million of repurchase authority expiring in April 2009.(c)
    
    shares surrendered to the Company to satisfy tax withholding obligations in
connection with the Stock Incentive Plan, of which there were 1,000 in April, 1,073 in
May and none in June 2008. (2)
    
    The average price paid per share excludes commissions. 
 Item 6. Exhibits
  41




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##### Table of Contents



SIGNATURES
  LODGIAN, INC.By:
    /s/ PETER T. CYRUSPeter T. CyrusDate: August  7, 2008
    
    Interim President and
Chief Executive OfficerBy:
    /s/ JAMES A. MACLENNANJames A. MacLennanDate: August 7, 2008
    
    Executive Vice President and
Chief Financial Officer 42




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    
    Description3.1
    
    
    Certificate of Correction to the Second Amended and Restated Certificate of Incorporation and
Second Amended and Restated Certificate of Incorporation of Lodgian, Inc. (Incorporated by
reference to Exhibit 3.1 to Amendment No. 2 to the Companys Registration Statement on Form
S-1 (File No. 333-113410), filed on June 4, 2004).3.2
    
    
    Amended and Restated Bylaws of Lodgian, Inc. (Incorporated by reference to Exhibit 3.4 to the
Companys Annual Report for the period ended December 31, 2003 (File No. 1-14537), filed on
March 9, 2004).4.1
    
    
    Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.1 to Amendment No.
2 to the Companys Registration Statement on Form S-1 (File No. 333-113410), filed on June 6,
2004).4.2
    
    
    Class B Warrant Agreement, dated as of November 25, 2002, between Lodgian, Inc. and Wachovia
Bank, N.A. (Incorporated by reference to Exhibit 10.10 to the Companys Annual Report for the
period ended December 31, 2003 (File No. 1-14537), filed on March 9, 2004).10.1
    
    
    Form of Lodgian, Inc. Amended and Restated Executive and Incentive Plan (Incorporated by
reference to Exhibit 99.1 to the Company Current Report on Form 8-K (File No. 1-14537), filed
with the Commission on April 15, 2008).31.1
    
    
    Sarbanes-Oxley Section 302 Certification by the CEO.**31.2
    
    
    Sarbanes-Oxley Section 302 Certification by the CFO.**32
    
    
    Sarbanes-Oxley Section 906 Certification by the CEO and CFO.**
 
 **
    
    Filed herewith. 43